A New Approach To Business Model Innovation

In a disruptive age, established business models are under attack. Here’s how incumbent companies can reframe them.[/mk_fancy_title]

We hear a lot about the importance and impact of business model innovation, tools start to emerge that help identify different types of business models [e.g. from the BMI Lab]. McKinsey has cottoned on to what is really required to change business models: a different mindset, based on reframing and letting go of assumptions! Now, how difficult can that be …

You can read our favourite insights (excerpts from the article) below or click through to the full article from McKinsey in the link at the bottom.

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How, exactly, new entrants achieve their disruptive power. What enables them to skirt constraints and exploit unseen possibilities? In short, what’s the process of business-model innovation?

In a nutshell, the process begins with identifying an industry’s foremost belief about value creation and then articulating the notions that support this belief. By turning one of these underlying notions on its head—reframing it—incumbents can look for new forms and mechanisms to create value. When this approach works, it’s like toppling a stool by pulling one of the legs.

Every industry is built around long-standing, often implicit, beliefs about how to make money. In retail, for example, it’s believed that purchasing power and format determine the bottom line. In telecommunications, customer retention and average revenue per user are seen as fundamental.

Success in pharmaceuticals is believed to depend on the time needed to obtain approval from the US Food and Drug Administration. Assets and regulations define returns in oil and gas. In the media industry, hits drive profitability. And so on.

The fuller process and the questions to ask along the way look like this:

1. Outline the dominant business model in your industry
2. Dissect the most important long-held belief into its supporting notions
3. Turn an underlying belief on its head
4. Sanity-test your reframe
5. Translate the reframed belief into your industry’s new business model

(find detailed description of the process in the full article)

Read the full article

Published by McKinsey in July 2015

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